Invoice payment is the most popular payment method in B2B trade, but it is a complex process that involves more than just generating an invoice. B2B merchants should understand four compontents that are crucial for successful processing, before they can decide if to do it in-house or outsource to a professional provider. 

1. Identity check, scoring, credit check:

This task involves verifying the identity and credit worthiness of the business making the purchase. It helps ensure that the transaction is legitimate, that the buyer is who they claim to be, and whether or not credit terms can be extended to them.

2. Risk Management and strategy:

This step involves assessing and mitigating the potential risks associated with offering credit to customers. It includes assessing the risk of late or non-payment, as well as the risk of fraud. Strategies for risk management may include setting credit limits for customers, monitoring payment behavior, and implementing fraud detection measures.

3. Accounts Receivable Management:

Accounts receivable management encompasses the entire process of handling outstanding customer invoices. It includes issuing invoices, tracking payments, and following up on unpaid invoices. Effective management ensures that payments are received on time and cash flow is optimized.

4. Dunning and Collection:

The last component covers the process of communicating with customers who have overdue invoices to remind them of their payment obligations which can escalate to legal action or engaging with debt collection agencies , in case customers have not responded to previous dunning attmepts. 

In-House or Outsource: What's the Right Choice?

The decision to manage invoice payments in-house or outsource to a professional provider depends on several factors, including a company's size, sales volume, financial expertise, and customer base - and the company's ability to perform the four components explained earlier in an effective way .

Let's examine the advantages and disadvantages of each option based on control, effort, cost, and risk.

Managing Invoice Payments In-House

Managing invoices internally offers complete control and enables direct customer engagement throughout the purchasing journey. However, it comes with significant challenges:

1. Lack of Data: Assessing customer creditworthiness requires extensive data, which many B2B merchants lack. Inadequate data can increase the risk of payment defaults or lead to unjust rejections, potentially costing revenue.

2. Time and Personnel Requirements: In-house management demands significant time and personnel commitments. This can lead to increased costs through staff expansion or neglect of other business functions.

3. Risk of Non-Payment: Despite close monitoring, some clients may not pay their bills, leading to bad debt and cash flow issues. Managing receivables requires constant vigilance and timely responses to late payments.

Outsourcing Invoice Payments

1. Eliminate non-payment risk: Payment providers bear the risk of non-payment, ensuring merchants receive invoice amounts promptly, even in case of default.

2. More time for growth: Outsourcing accounts receivable management frees up time and resources, allowing businesses to focus on growth.

3. Enhanced data for security: Payment providers have access to extensive data, facilitating comprehensive credit checks and identity verification with higher approval rates.

In conclusion, for most B2B merchants and marketplaces, outsourcing invoice payment processes to a service provider makes sound business sense. It saves time, effort, and mitigates the substantial risk of payment defaults.

Ready to explore the advantages of outsourcing invoice payment? Visit Mondu's website or reach out to us directly.